June 12, 2025 • 18 mins
Stocks fell along with equity-index futures and investors rushed to the safety of havens such as Treasuries after Israel attacked Iran's nuclear program sites. Crude oil jumped more than 9% while gold also rose. We get the latest on what's moving markets from Mary Nicola, Bloomberg MLIV Strategist in Singapore.
Plus - Treasuries rallied across the curve on Thursday, bringing the 10-year yield six basis points lower to around 4.36%. The gains were supported by the second US inflation print in as many days that came in below consensus forecasts, backing the argument for Fed cuts. The dollar hit a three-year low. The producer price index rose 0.1% from a month earlier, compared with the median forecast in a Bloomberg survey of economists that called for a 0.2% increase. A solid sale of long-term US government debt added further impetus for the rally, reducing fears that spiraling deficits are causing investors to shun the bonds. We talk inflation and trade with Natalia Gurushina, Chief Economist for EM Fixed Income Strategy at VanEck.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Prisoner.
Let's update our top story. Israel has launched a preemptive
strike against Iran. Now Israeli Prime Minister Benjamin Agnia who
says that these strikes are focused on Iran's nuclear program
and ballistic missiles, and the strikes will last until that
threat is removed. Israel's Defense minister has declared a state
(00:33):
of emergency, saying the country is anticipating retaliatory action in Iran.
State run Newer News is reporting successive explosions have been
heard in the capital city of Tehran. Meantime, US Secretary
of State Marco Rubio said the US is not involved
in these strikes against Iran. Here is Bloomberg's Michael Heath.
Speaker 3 (00:55):
It was sort of interesting in that we had we
had President Trump saying, you know, saying that he didn't
want Israel to do this, and obviously there's supposed to
be talks in Oman on Sunday, a sixth round of
these nuclear negotiations, and yet off the record, there was
reporting was beginning to happen that that an Israeli a
tack could happen within six to twelve hours, and then
(01:16):
you know, within half an hour of that, suddenly we're
getting this news that.
Speaker 2 (01:20):
Is Bloomberg's Michael Heath. Now the price of crude, not surprisingly,
is rallying at this hour. Let's take a look now
at some of the other issues that markets in Asia
are grappling with this morning, not the least of which
the tariff story. The dollar weakened to the lowest level
in about three years in the New York session, not
only concern about how tariffs are impacting the US, but
(01:41):
the global economy as well. For more, I am joined
by Bloomberg m Live strategist Mary Nicola, who joins us
from our studios in Singapore. Let's put aside the oil
story for a moment, Mary, there is a lot that
we still don't know. But talk to me a little
bit about what you're observing in the currency market and
the fluctuation. More importantly, the weakness that we have seen
(02:03):
in the dollar.
Speaker 4 (02:04):
Pretty evident that what we're seeing in the currency market
is that the dollar has become the punching bag. So
any sort of headlines around tariff uncertainty or any concerns
about tariff just undermines the dollar, and we've seen it
consistently talks about expectations of more auto tariffs. The other
(02:27):
day when Trump spoke about potential unilateral tariffs, it was
the dollar that was first hit. And a lot of
it has to do with the fact that the combination
of policy uncertainty, the concerns about what the impact of
US growth can potentially be, and then of course precipitating
the dollar decline has been what we've been seeing in yields.
So we've seen a more benign environment for inflation, and
(02:50):
we had really good auctions actually the past two this
past week, so whether it was a ten year or
the thirty year where a lot of investors came in
with a lot of angst, especially on the thirty year ball,
but they've actually done well. So we've seen that the
declining yields has actually added to the momentum, the downside
dollar momentum.
Speaker 2 (03:08):
So with dollar weakness, give me a sense of the
currencies in Asia that are benefiting. Is it really a
story of a stronger yen.
Speaker 4 (03:15):
I think it's a story of a lot of across
the board strength. So whether you're looking at the end
the Korean wand especially those two because they're quite in
the spotlight, especially with trade negotiations. The Korean officials have
spoken about the currency being on the table. Taiwan dollar.
Of course, a few weeks ago we had a surge
(03:36):
and the Taiwan dollar, and a lot of it was
on speculation that they were allowing it to move in
light of trade negotiations. And it arguably if you look
at the yen, the Korean wand if you look at
it over a long term basis, in terms of valuations,
it is considered quite cheap, so there's plenty of scope
for it to appreciate. And then in terms of some
(03:58):
of the other currencies this year, and y is also
very very closely watched. That was already put on the
that was already on the Treasury monitoring list along with
the Japanese yen and the Korean wan, and largely the
concern of the Treasury was on the lack of transparency
on the yuan. So and we're seeing a drift, a
(04:20):
drift of hire in the c and y and that
is also another thing that is going to keep the
anchor for Asian currencies to continue to appreciate.
Speaker 2 (04:31):
We have a very important central bank meeting in the
week ahead. The Bank of Japan will be confronted with
a decision on infrast rates. So, given everything that we've
been talking about, the concern on global trade, the flows
of assets moving in and out of different markets, the
fluctuations and currencies, do you think that there is just
too much noise right now and the boj is just
(04:52):
going to be a little averse to making any type
of adjustment to policy.
Speaker 4 (04:57):
Absolutely, inflation is a problem in Japan, and we've seen
inflation prints come in higher, yet they're likely to stand
pat because of the uncertainty that you just mentioned. But
I think what the key focus will be for the
markets is just on how they adjust their tapering and
their quantitative and their balance sheet runoff, because as we know,
we've seen increased volatility in the Japanese bond markets over
(05:20):
the last few few weeks, and what that has done
is the fact that especially the longer dated we've seen
heightened volatility and weak demand in the auctions as well.
So the a lot of investors are focused on do
they change their tapering profile and do they sell less
(05:42):
of the back end and more of the front end
to just ease some of that pressure.
Speaker 2 (05:46):
So away from Japan, what about China and what may
we learn in the days ahead.
Speaker 4 (05:51):
So for China, we do have their usual monthly data
dump coming in on Monday and some money supply data. Obviously,
the key risk for China and its ongoing recovery is consumption.
And the fact is it's almost like the markets have
become resigned to weak consumption right now. And what really
was a setback for the markets was just where pmis
(06:13):
were the kaishin PMI that measures small and medium sized
businesses the health their health that really fell into contraction
in the last month, and that really upset markets. So
the retail sales is just going to be just yet
another drag. But we know that the focus for the
government in terms of spending has been mostly on manufacturing
(06:36):
an AI investment, so we they obviously and and the
and the pickup on the on the consumer spending with
some of the handouts has been actually quite limited. So
the focus will be on how manufacturing picks up more
so than consumption because there still is a massive drag
on the consumption side.
Speaker 2 (06:56):
Mary will leave it there, enjoy the weekend. It's always
a pleasure to chat with you. Mary Nicolo. There Bloomberg
Market Live strategists joining from Singapore here on the Daybreak
Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm
Doug Krisner. So in the US. During the last session,
(07:17):
we got a second muted reading on inflation in as
many days. Headline PPI was up at a monthly rate
of one tenth of one percent, and then on top
of that, recurring applications for jobless benefits rose to the
highest level since the end of twenty twenty one. I
think it's fair to say these data points fueled hope
of a dubvish message from next week's FED meeting. We
(07:38):
had yields down across the curve today and at the
same time, the dollar hit a three year low. Now
that came after President Trump said he would set unilateral
tariffs on trading partners in about two weeks. For a
closer look, now at the macro, I'm joined by Natalia Gurushina.
She is the chief economist for Emerging Markets Fixed Income
(07:58):
Strategy at Vanek to Tealia, thank you so much for
being with us. I want to begin by asking to
get your sense of the degree of slower growth that
you're seeing well.
Speaker 1 (08:09):
As you can probably hear, there is some noise in
the office from our neighbors. So I think that's probably
signed that the economy is not completely collapsing. But the
policy uncertainty is I think that's the key issue. That's
probably one of the biggest growth hadwinds, not just for
the yes, for emerging markets. I think that are definitely upsides,
(08:31):
and I think the upside one of the growth upsides
globally actually comes from Asia. The fact that China has
got policy space to provide additional sterilus and another I
think positive for global growth is that China isn't a
better shape fundamentally than it was during the first Trade
War and specific issues. You know, China definitely made a
(08:53):
very significant progress moving up technological value chain during the pandemic,
and China also eliminated some of the important the mess
well not necessarily eliminated, but lowered domestic negative tail risks
for example local governments, hidden debt, and also real estate.
(09:14):
So but you know, as regards as a price is
what is very important for us in emerging markets. It's
not just a weekly used dollar, but the fact that
China doesn't have to react policy wise, it can remain patient,
and specifically it keeps the REMIMBI stable. That's very important
anchor for em effacts. But you know, if you look
(09:36):
at stable Asian effects together with slow girls lower inflation,
that probably should continue pushing local rates lower. So I
think that's kind of one of the ways that markets
can make money in the situation when we have concerns
about the global girls out.
Speaker 2 (09:50):
I want to get your take on the meeting that
occurred in London this week between the US and China.
There was an agreement on a trade framework. Now, from
the state's perspective, President Trump is hailing it as a
game changing breakthrough, But I think it's fair to say
that this is pretty much a reset from earlier terms, right,
even at some cost. I guess if you look at
(10:10):
the fact that the United States agreed to roll back
a promised crackdown on visus for Chinese students, the rare
earth shipments are set to return to levels that were
pre April. Second, give me your sense of what was
accomplished in this meeting, if anything, you.
Speaker 1 (10:28):
Know, my sense is not really much, because first of all,
there is a great deal of uncertainty about the legal
process regarding the tarists in DS. So for example, you know,
there was a court decision to freeze the tariffs, which
has been you know, then reversed after the court of appeal.
(10:51):
And there are also some other provisions legal provisions that
are open to administration to impost taris. I'm specifically referring
to section three zero one and section three two two
three two, So you know it might provide you know,
as regards to market reaction, it provides definitely some threasure
fresh air, But fundamentally I'm on a skeptical site. I
(11:15):
don't think you know, a lot has been accomplished. As
I said, it's a welcome pose, and it's good that
emergency markets, you know, specifically Asian currencies can use this
post to advance. That's definitely one of the reasons why,
for example, IM local debt is performing so well, because
you know, emerging markets are used in this momentum. But
(11:37):
as I said, as regards eliminating this uncertainty, I'm on
a skeptical site simply because there is so much legal
uncertainty exactly how this process is going to develop in
the coming weeks and months.
Speaker 2 (11:47):
I hear what you're saying in terms of what China
has at its disposal to keep the economic going. One
of the things that we're very sensitive to is the
labor market in China and the degree to which people
need to be employed. Do you think that is a
critical part of the story domestically right now?
Speaker 1 (12:03):
You know, that's part of the story. I think one
of the biggest issues for me as economist when I
look at China is that each time when I look
at the China's consumer confidence index, it remains frozen at
a very low level. And unfortunately, the solutions are very
long term. So it's not just the labor market right now,
(12:27):
it's it's pensionaryform, it's uh, you know, it's it's social
social safety in net Chinese thinking about this, which I
think is a good, very good science. So it's where
it's got problems. But again, you cannot achieve a solution
in these very significant areas in the year or two.
I mean, one potential catalyst, which I think kind of
(12:51):
a reasonably short term catalyst, which might actually provide a
boost to consumer confidence is an announcement, uh, for example,
about using the Essential Governments Balance it to deal with
the with the problem of unfinished houses. But again there
are a lot of uncertainties there regarding the pricing and
the valiations. It's just the sharing number of the houses
(13:12):
unfinished houses is so great. So yes, I think I'm
looking at these issues. I'm looking for more announcements regarding
these kind of longer term structural issues. But I agree
with you, Yes, the labor market is that's that's an
important point. But as I said, I don't think, you know,
the solution to consumer confidence in China can be found
(13:35):
on a very short term and unfortunately, the market is
sometimes getting impatient, you know, looking for a big bazuko
or a big statement, whereas it's it's a longer term process,
process of reforms.
Speaker 2 (13:44):
So how do you understand the risk If the deflation
story in China is clearly problematic, what are the risk
that you see associated with that? Maybe in the next
six months to a year from now.
Speaker 1 (13:57):
You know, I'm a little bit less concerned about deflation
in China. I think what is important for me is
how the government is going to well. First of all,
China has got policy space, right, China has got policy
space on the fiscal side, and China has got policy
space on the mine trait side. So I think that's
(14:18):
very important because a lot of countries around the globe,
you know, the fiscal space is like and unfortunately, I
think what is also important kind of looking forward is
how the exchange rate is going to evolve. And it's
again it's not just for kind of shorter term portfolio considerations.
It's you know, a more stable exchange rate, maybe slightly
(14:41):
appreciating exchange rate will allow China to explore some other
avenues like maybe you know, if you think about benig gpennification,
so to say, when back in the ages, Japan was
exporting FDIs to the rest of the world, So that's
kind of one of the potential avenues China math expos
I don't think that's you know, I don't want to
think about necessarily risks in this regard, but thinking about
(15:04):
kind of policy options, and that's I think one of
the policy options that are most stable or stronger currency
can give Chinese authorities.
Speaker 2 (15:11):
What about the way in which China has been redirecting
some of its trade flows to compensate for the problems
with the United States, and is that being done in
an effective way to kind of mitigate the risk of
weaker export activity to the United States.
Speaker 1 (15:27):
I think this is a very important point that you mentioned,
because you know, we talked about the elimination of some
domess decreasks, which I think gives China key advantage right now.
But also China the fact that Chinese is now less
reliant on the S in foreign trade also give it
more policy options, and specifically the fact that with this
(15:48):
in place, China can afford to be more patient and
not to react each time the years sneezes. Right, So
more countries, it's not just the trade kind of more
countries now trade, which than than with the yes. And also,
as you pointed out, China started to redirect a trade
and also some supply chains, which I think is even
more important towards emerging markets. Right. Of course, some of
(16:11):
this reflects China's attempts to circumvent the existing times and restrictions,
but it definitely does not explain one hundred percent one
hundred percent of the shift. So you know, in my opinion,
that's that might be evidence of regionalization, China kind of
trying to maybe find more opportunities link itself closely to
(16:35):
the global ceuce, which again will benefit imaging markets. And
again maybe it's uh. I don't know. Have you thought
about the fact that if China is expanding into global
cells into the rest of Asia, providing more FDI Uh. Again,
this scenario is associated with a stable, maybe slightly stronger currency,
maybe maybe exporting technology expertise. Maybe this can help some
(17:00):
of these countries to finally escape the middle income trap.
I mean that definitely would be a very positive scenario.
Speaker 2 (17:06):
And maybe the US pays the price for that, which
then would only fuel this idea that we're seeing the
end of US exceptionalism.
Speaker 1 (17:14):
Oh you know, we Atwanek are talking about the era
of em exceptionalism. And I think what is interesting about
this is that in Asia you have two big growth drivers.
One of them China is already an independent global gross driver,
but you also have India, right and India Actually, India's
(17:37):
growth has got I would say a second second brass
right now, and you know, gross momentums getting much needed
policy support. And I'm particularly encouraged by the fact that
India's fiscal effort is finally focusing on capital expenditure, which
is key for lifting India's growth long term growth trajectory.
(17:59):
But I don't and you will not dismiss the idea
of China's girls rebound yet. You know, as I said,
China has got Paulus room, and as one of my
colleagues in Vanak pointed out, China's innovation engine is running
at full speed. So I'm very happy about that.
Speaker 2 (18:12):
Italia, We'll leave it there. Thank you so much. Natalia Gurushina.
She is the chief economist for Emerging Markets Fixed Income
Strategy at van Neck. Joining us here on the Daybreak
Asia podcast. Thanks for listening to today's episode of the
Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at
the story shaping markets, finance, and geopolitics in the Asia Pacific.
(18:36):
You can find us on Apple, Spotify, the Bloomberg Podcast
YouTube channel, or anywhere else you listen. Join us again
tomorrow for insight on the market moves from Hong Kong
to Singapore and Australia. I'm Doug Chrisner, and this is
Bloomberg
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Prisoner.
Let's update our top story. Israel has launched a preemptive
strike against Iran. Now Israeli Prime Minister Benjamin Agnia who
says that these strikes are focused on Iran's nuclear program
and ballistic missiles, and the strikes will last until that
threat is removed. Israel's Defense minister has declared a state
(00:33):
of emergency, saying the country is anticipating retaliatory action in Iran.
State run Newer News is reporting successive explosions have been
heard in the capital city of Tehran. Meantime, US Secretary
of State Marco Rubio said the US is not involved
in these strikes against Iran. Here is Bloomberg's Michael Heath.
Speaker 3 (00:55):
It was sort of interesting in that we had we
had President Trump saying, you know, saying that he didn't
want Israel to do this, and obviously there's supposed to
be talks in Oman on Sunday, a sixth round of
these nuclear negotiations, and yet off the record, there was
reporting was beginning to happen that that an Israeli a
tack could happen within six to twelve hours, and then
(01:16):
you know, within half an hour of that, suddenly we're
getting this news that.
Speaker 2 (01:20):
Is Bloomberg's Michael Heath. Now the price of crude, not surprisingly,
is rallying at this hour. Let's take a look now
at some of the other issues that markets in Asia
are grappling with this morning, not the least of which
the tariff story. The dollar weakened to the lowest level
in about three years in the New York session, not
only concern about how tariffs are impacting the US, but
(01:41):
the global economy as well. For more, I am joined
by Bloomberg m Live strategist Mary Nicola, who joins us
from our studios in Singapore. Let's put aside the oil
story for a moment, Mary, there is a lot that
we still don't know. But talk to me a little
bit about what you're observing in the currency market and
the fluctuation. More importantly, the weakness that we have seen
(02:03):
in the dollar.
Speaker 4 (02:04):
Pretty evident that what we're seeing in the currency market
is that the dollar has become the punching bag. So
any sort of headlines around tariff uncertainty or any concerns
about tariff just undermines the dollar, and we've seen it
consistently talks about expectations of more auto tariffs. The other
(02:27):
day when Trump spoke about potential unilateral tariffs, it was
the dollar that was first hit. And a lot of
it has to do with the fact that the combination
of policy uncertainty, the concerns about what the impact of
US growth can potentially be, and then of course precipitating
the dollar decline has been what we've been seeing in yields.
So we've seen a more benign environment for inflation, and
(02:50):
we had really good auctions actually the past two this
past week, so whether it was a ten year or
the thirty year where a lot of investors came in
with a lot of angst, especially on the thirty year ball,
but they've actually done well. So we've seen that the
declining yields has actually added to the momentum, the downside
dollar momentum.
Speaker 2 (03:08):
So with dollar weakness, give me a sense of the
currencies in Asia that are benefiting. Is it really a
story of a stronger yen.
Speaker 4 (03:15):
I think it's a story of a lot of across
the board strength. So whether you're looking at the end
the Korean wand especially those two because they're quite in
the spotlight, especially with trade negotiations. The Korean officials have
spoken about the currency being on the table. Taiwan dollar.
Of course, a few weeks ago we had a surge
(03:36):
and the Taiwan dollar, and a lot of it was
on speculation that they were allowing it to move in
light of trade negotiations. And it arguably if you look
at the yen, the Korean wand if you look at
it over a long term basis, in terms of valuations,
it is considered quite cheap, so there's plenty of scope
for it to appreciate. And then in terms of some
(03:58):
of the other currencies this year, and y is also
very very closely watched. That was already put on the
that was already on the Treasury monitoring list along with
the Japanese yen and the Korean wan, and largely the
concern of the Treasury was on the lack of transparency
on the yuan. So and we're seeing a drift, a
(04:20):
drift of hire in the c and y and that
is also another thing that is going to keep the
anchor for Asian currencies to continue to appreciate.
Speaker 2 (04:31):
We have a very important central bank meeting in the
week ahead. The Bank of Japan will be confronted with
a decision on infrast rates. So, given everything that we've
been talking about, the concern on global trade, the flows
of assets moving in and out of different markets, the
fluctuations and currencies, do you think that there is just
too much noise right now and the boj is just
(04:52):
going to be a little averse to making any type
of adjustment to policy.
Speaker 4 (04:57):
Absolutely, inflation is a problem in Japan, and we've seen
inflation prints come in higher, yet they're likely to stand
pat because of the uncertainty that you just mentioned. But
I think what the key focus will be for the
markets is just on how they adjust their tapering and
their quantitative and their balance sheet runoff, because as we know,
we've seen increased volatility in the Japanese bond markets over
(05:20):
the last few few weeks, and what that has done
is the fact that especially the longer dated we've seen
heightened volatility and weak demand in the auctions as well.
So the a lot of investors are focused on do
they change their tapering profile and do they sell less
(05:42):
of the back end and more of the front end
to just ease some of that pressure.
Speaker 2 (05:46):
So away from Japan, what about China and what may
we learn in the days ahead.
Speaker 4 (05:51):
So for China, we do have their usual monthly data
dump coming in on Monday and some money supply data. Obviously,
the key risk for China and its ongoing recovery is consumption.
And the fact is it's almost like the markets have
become resigned to weak consumption right now. And what really
was a setback for the markets was just where pmis
(06:13):
were the kaishin PMI that measures small and medium sized
businesses the health their health that really fell into contraction
in the last month, and that really upset markets. So
the retail sales is just going to be just yet
another drag. But we know that the focus for the
government in terms of spending has been mostly on manufacturing
(06:36):
an AI investment, so we they obviously and and the
and the pickup on the on the consumer spending with
some of the handouts has been actually quite limited. So
the focus will be on how manufacturing picks up more
so than consumption because there still is a massive drag
on the consumption side.
Speaker 2 (06:56):
Mary will leave it there, enjoy the weekend. It's always
a pleasure to chat with you. Mary Nicolo. There Bloomberg
Market Live strategists joining from Singapore here on the Daybreak
Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm
Doug Krisner. So in the US. During the last session,
(07:17):
we got a second muted reading on inflation in as
many days. Headline PPI was up at a monthly rate
of one tenth of one percent, and then on top
of that, recurring applications for jobless benefits rose to the
highest level since the end of twenty twenty one. I
think it's fair to say these data points fueled hope
of a dubvish message from next week's FED meeting. We
(07:38):
had yields down across the curve today and at the
same time, the dollar hit a three year low. Now
that came after President Trump said he would set unilateral
tariffs on trading partners in about two weeks. For a
closer look, now at the macro, I'm joined by Natalia Gurushina.
She is the chief economist for Emerging Markets Fixed Income
(07:58):
Strategy at Vanek to Tealia, thank you so much for
being with us. I want to begin by asking to
get your sense of the degree of slower growth that
you're seeing well.
Speaker 1 (08:09):
As you can probably hear, there is some noise in
the office from our neighbors. So I think that's probably
signed that the economy is not completely collapsing. But the
policy uncertainty is I think that's the key issue. That's
probably one of the biggest growth hadwinds, not just for
the yes, for emerging markets. I think that are definitely upsides,
(08:31):
and I think the upside one of the growth upsides
globally actually comes from Asia. The fact that China has
got policy space to provide additional sterilus and another I
think positive for global growth is that China isn't a
better shape fundamentally than it was during the first Trade
War and specific issues. You know, China definitely made a
(08:53):
very significant progress moving up technological value chain during the pandemic,
and China also eliminated some of the important the mess
well not necessarily eliminated, but lowered domestic negative tail risks
for example local governments, hidden debt, and also real estate.
(09:14):
So but you know, as regards as a price is
what is very important for us in emerging markets. It's
not just a weekly used dollar, but the fact that
China doesn't have to react policy wise, it can remain patient,
and specifically it keeps the REMIMBI stable. That's very important
anchor for em effacts. But you know, if you look
(09:36):
at stable Asian effects together with slow girls lower inflation,
that probably should continue pushing local rates lower. So I
think that's kind of one of the ways that markets
can make money in the situation when we have concerns
about the global girls out.
Speaker 2 (09:50):
I want to get your take on the meeting that
occurred in London this week between the US and China.
There was an agreement on a trade framework. Now, from
the state's perspective, President Trump is hailing it as a
game changing breakthrough, But I think it's fair to say
that this is pretty much a reset from earlier terms, right,
even at some cost. I guess if you look at
(10:10):
the fact that the United States agreed to roll back
a promised crackdown on visus for Chinese students, the rare
earth shipments are set to return to levels that were
pre April. Second, give me your sense of what was
accomplished in this meeting, if anything, you.
Speaker 1 (10:28):
Know, my sense is not really much, because first of all,
there is a great deal of uncertainty about the legal
process regarding the tarists in DS. So for example, you know,
there was a court decision to freeze the tariffs, which
has been you know, then reversed after the court of appeal.
(10:51):
And there are also some other provisions legal provisions that
are open to administration to impost taris. I'm specifically referring
to section three zero one and section three two two
three two, So you know it might provide you know,
as regards to market reaction, it provides definitely some threasure
fresh air, But fundamentally I'm on a skeptical site. I
(11:15):
don't think you know, a lot has been accomplished. As
I said, it's a welcome pose, and it's good that
emergency markets, you know, specifically Asian currencies can use this
post to advance. That's definitely one of the reasons why,
for example, IM local debt is performing so well, because
you know, emerging markets are used in this momentum. But
(11:37):
as I said, as regards eliminating this uncertainty, I'm on
a skeptical site simply because there is so much legal
uncertainty exactly how this process is going to develop in
the coming weeks and months.
Speaker 2 (11:47):
I hear what you're saying in terms of what China
has at its disposal to keep the economic going. One
of the things that we're very sensitive to is the
labor market in China and the degree to which people
need to be employed. Do you think that is a
critical part of the story domestically right now?
Speaker 1 (12:03):
You know, that's part of the story. I think one
of the biggest issues for me as economist when I
look at China is that each time when I look
at the China's consumer confidence index, it remains frozen at
a very low level. And unfortunately, the solutions are very
long term. So it's not just the labor market right now,
(12:27):
it's it's pensionaryform, it's uh, you know, it's it's social
social safety in net Chinese thinking about this, which I
think is a good, very good science. So it's where
it's got problems. But again, you cannot achieve a solution
in these very significant areas in the year or two.
I mean, one potential catalyst, which I think kind of
(12:51):
a reasonably short term catalyst, which might actually provide a
boost to consumer confidence is an announcement, uh, for example,
about using the Essential Governments Balance it to deal with
the with the problem of unfinished houses. But again there
are a lot of uncertainties there regarding the pricing and
the valiations. It's just the sharing number of the houses
(13:12):
unfinished houses is so great. So yes, I think I'm
looking at these issues. I'm looking for more announcements regarding
these kind of longer term structural issues. But I agree
with you, Yes, the labor market is that's that's an
important point. But as I said, I don't think, you know,
the solution to consumer confidence in China can be found
(13:35):
on a very short term and unfortunately, the market is
sometimes getting impatient, you know, looking for a big bazuko
or a big statement, whereas it's it's a longer term process,
process of reforms.
Speaker 2 (13:44):
So how do you understand the risk If the deflation
story in China is clearly problematic, what are the risk
that you see associated with that? Maybe in the next
six months to a year from now.
Speaker 1 (13:57):
You know, I'm a little bit less concerned about deflation
in China. I think what is important for me is
how the government is going to well. First of all,
China has got policy space, right, China has got policy
space on the fiscal side, and China has got policy
space on the mine trait side. So I think that's
(14:18):
very important because a lot of countries around the globe,
you know, the fiscal space is like and unfortunately, I
think what is also important kind of looking forward is
how the exchange rate is going to evolve. And it's
again it's not just for kind of shorter term portfolio considerations.
It's you know, a more stable exchange rate, maybe slightly
(14:41):
appreciating exchange rate will allow China to explore some other
avenues like maybe you know, if you think about benig gpennification,
so to say, when back in the ages, Japan was
exporting FDIs to the rest of the world, So that's
kind of one of the potential avenues China math expos
I don't think that's you know, I don't want to
think about necessarily risks in this regard, but thinking about
(15:04):
kind of policy options, and that's I think one of
the policy options that are most stable or stronger currency
can give Chinese authorities.
Speaker 2 (15:11):
What about the way in which China has been redirecting
some of its trade flows to compensate for the problems
with the United States, and is that being done in
an effective way to kind of mitigate the risk of
weaker export activity to the United States.
Speaker 1 (15:27):
I think this is a very important point that you mentioned,
because you know, we talked about the elimination of some
domess decreasks, which I think gives China key advantage right now.
But also China the fact that Chinese is now less
reliant on the S in foreign trade also give it
more policy options, and specifically the fact that with this
(15:48):
in place, China can afford to be more patient and
not to react each time the years sneezes. Right, So
more countries, it's not just the trade kind of more
countries now trade, which than than with the yes. And also,
as you pointed out, China started to redirect a trade
and also some supply chains, which I think is even
more important towards emerging markets. Right. Of course, some of
(16:11):
this reflects China's attempts to circumvent the existing times and restrictions,
but it definitely does not explain one hundred percent one
hundred percent of the shift. So you know, in my opinion,
that's that might be evidence of regionalization, China kind of
trying to maybe find more opportunities link itself closely to
(16:35):
the global ceuce, which again will benefit imaging markets. And
again maybe it's uh. I don't know. Have you thought
about the fact that if China is expanding into global
cells into the rest of Asia, providing more FDI Uh. Again,
this scenario is associated with a stable, maybe slightly stronger currency,
maybe maybe exporting technology expertise. Maybe this can help some
(17:00):
of these countries to finally escape the middle income trap.
I mean that definitely would be a very positive scenario.
Speaker 2 (17:06):
And maybe the US pays the price for that, which
then would only fuel this idea that we're seeing the
end of US exceptionalism.
Speaker 1 (17:14):
Oh you know, we Atwanek are talking about the era
of em exceptionalism. And I think what is interesting about
this is that in Asia you have two big growth drivers.
One of them China is already an independent global gross driver,
but you also have India, right and India Actually, India's
(17:37):
growth has got I would say a second second brass
right now, and you know, gross momentums getting much needed
policy support. And I'm particularly encouraged by the fact that
India's fiscal effort is finally focusing on capital expenditure, which
is key for lifting India's growth long term growth trajectory.
(17:59):
But I don't and you will not dismiss the idea
of China's girls rebound yet. You know, as I said,
China has got Paulus room, and as one of my
colleagues in Vanak pointed out, China's innovation engine is running
at full speed. So I'm very happy about that.
Speaker 2 (18:12):
Italia, We'll leave it there. Thank you so much. Natalia Gurushina.
She is the chief economist for Emerging Markets Fixed Income
Strategy at van Neck. Joining us here on the Daybreak
Asia podcast. Thanks for listening to today's episode of the
Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at
the story shaping markets, finance, and geopolitics in the Asia Pacific.
(18:36):
You can find us on Apple, Spotify, the Bloomberg Podcast
YouTube channel, or anywhere else you listen. Join us again
tomorrow for insight on the market moves from Hong Kong
to Singapore and Australia. I'm Doug Chrisner, and this is
Bloomberg
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